The Almighty Interest Rate
May 6th, 2013 by Tatyana Levin
The almighty interest rate often commands the ebbs and flows of the commercial real estate market. Interest rates dictate how many properties are sold which is pretty much the biggest indicator for the health of an industry.
Currently, interest rates are low, and this is good for potential investors. This is also a good way for the industry to begin its recovery process.
According to John Krainer of the Federal Reserve Bank of San Francisco, “low interest rates have led to higher property valuations and are clearly benefiting the sector.”
Buying a commercial property at a low interest rate means having even more of an opportunity to get greater returns from such an investment.
Lower interest rates change the game; it used to be the more you invest, the more you stand to gain. But with such low interest rates, the property and its potential remain the same as they would if interest rates were higher, so you as an investor get to invest less for the same potential return.
But remember that interest rates are dynamic. They reflect the market and more specifically interest in buying commercial real estate. The purpose of low interest rates is to entice buyers to participate in a slow market. Once people catch wind of this and begin buying commercial property and get a mortgage with a low interest rate, interest rates begin to rise back up.
So take advantage of today’s rates since they won’t stay this low for long.